On PhonePe, it (UPI) became popular because Flipkart is linked with PhonePe. PhonePe also did a lot of advertising and it was also the first non-bank player to adopt UPI.

With a 3% MDR, the National Electronic Toll Collection (NETC) is a lucrative business for banks, said AP Hota, managing director and chief executive officer, NPCI.

The National Payments Corporation of India (NPCI) has decided to reduce what it charges banks for each immediate payment service (IMPS) transaction to Rs 0.25 from Rs 0.50 for transactions up to Rs 1,000 in a bid to make low-value transactions free, AP Hota, managing director and chief executive officer, NPCI, told FE. With a 3% MDR, the National Electronic Toll Collection (NETC) is a lucrative business for banks, he added. Edited excerpts:

A good 40% of UPI transactions are on PhonePe and about 45% are on BHIM. The rest is from Bank apps. Do you see this changing? Are banks miffed with you because wallets seem to have a big chunk of UPI?
Yes, this is changing. We see a clear trend of a couple of banks, like Axis and ICICI, marketing the UPI. Also, a few banks, like Vijaya Bank and Syndicate Bank, have come out with advertisements for the UPI. On PhonePe, it (UPI) became popular because Flipkart is linked with PhonePe. PhonePe also did a lot of advertising and it was also the first non-bank player to adopt UPI. Also, it was ready to invest money in UPI. They gave a lot of cashbacks, which were being given only by wallet companies earlier.There are now 16-17 such non-bank apps for the UPI.

What exactly was the problem between PhonePe and ICICI Bank?
At that time, PhonePe did not give an option to the customer to choose any bank other than YES Bank. That was wrong and they corrected that. ICICI Bank was right to the extent that the customer did not have the option of choosing another bank. But, they were not right in abruptly stopping the transaction. That is where it became a stalemate. The problem was resolved after five or six weeks.

Would banks be more enthusiastic about UPI if they were charging for it?
As far as merchant payments are concerned, they get the MDR (merchant discount rate), but as far as the remittance transactions are concerned, it is still free for everybody. In fact, they are incurring an expenditure of Rs 1.50 on each transaction. Now, we at the NPCI have taken a board decision that we will reduce our fee from Rs 0.50 to Rs 0.25 for all low-value IMPS transactions because UPI really rides on IMPS. We have created a structure where it (the total cost) will be IMPS transaction processing cost plus UPI transaction processing cost. We have made the UPI processing cost zero. We will reduce the IMPS transaction processing cost to Rs 0.25, subject to banks also reducing their interchange, such that for transactions up to Rs 1,000, the system is totally free. Discussions for that are on.

How is the NETC network doing?
This is one product which has grown rapidly. Last month, we had eight million transactions on NETC. Of 375 toll gates on the national highways, 360 have already been covered. Work is underway also for covering the state highways. The national highways have been covered well because the National Highways Authority of India (NHAI) has invested money. They give 3% as MDR (merchant discount rate) to the banks, which is shared among the issuing bank, the acquiring bank and the NPCI. This is a very lucrative business. There’s a big question mark on whether the state highway authorities will be able to pay something like 3%. They are also not as organised as the NHAI, but they have a target from the ministry. In the national highway tollg ates also, only one lane is ETC-enabled. All the lanes will have to be ETC-enabled. It will take about two years to cover all the lanes in the national highways and at least one in the state highways.